Is A Deregulated Taxi Really That Bad?

Continually we are seeing protests when Uber is thinking of entering a given market. As we have talked about before, Taxis should be competing, not protesting. The fact that there is so much animosity from Taxis, shows that Uber is gaining momentum.

Taxis need to stop protesting and start competing, but this is easier said than done, as Uber and Taxis are not playing on the same playing field. Uber is able to operate without the same regulations as Taxis. Given this is the case, we are now at a crossroads. Regulate Uber or deregulate Taxis?

If Taxis and Uber are not on the same playing field, then the solution is to put them on the same playing field. In that case, let’s deregulate Taxis and give them a fighting chance against Uber. This is an argument we are hearing, and the focus of our attention here.

We will take a look at why Taxis are regulated, Taxi competition, and what could possibly be a solution to this conundrum.

Why Are Taxis Regulated?

Industries are regulated for a number of reasons, but the fundamental reason tends to be to protect consumers. In the case of Taxis, this is exactly the argument. Taxis have been known to gouge customers, take longer routes, get in accidents, and be unfit for driving a Taxi. All these issues prompted government intervention, at a time when there was lack of information and no real competition. The big problem is that consumers have a lack of information, which then puts the business at a place to take advantage of the consumer.

With the advent of technology, this lack of information is slowly eroding away. Both technology, as well as real competition is making the case for less regulation. The argument is that this time it is different. This is possibly true, and can actually be argued in favor of, as we look at the state of the Taxi industry when they were last deregulated. The last deregulation of the Taxi industry was more like an deregulated monopoly.

To understand a deregulated monopoly, we first need to take a look at a Taxis real competition.

Lack of Competition

In any given market where the Taxi industry is heavily regulated, competition between the Taxis is not between the Taxis themselves. The competition is with other modes of transportation. Buses, trains, walking, and private cars. This is the competition that the Taxi industry is really facing. Some cities, and countries provide Taxis more natural competition than others. We will look to the United States for our examples.

The United States has tried to deregulate Taxis twice and failed. Looking at the state of the Taxi markets that were deregulated (Seattle, Oakland, San Diego, and a few others), it may not be that it failed, but that there was insufficient competition. In argument of lack of competition, keep in mind that the deregulated markets in the particular cities in the United States, did not have adequate competition in the form of buses and trains. Public transportation in the United States to this day is very minimal and inefficient. Therefore, it is not that there wasn’t sufficient regulations, but that it turned out to be a deregulated monopoly.

So if this is the case, what does a deregulated monopoly look like?

Deregulated Monopoly

The only place crazy enough to try deregulating industries with no competition multiple times, is the United States. We will look at two examples, from two different industries to see what we can learn about less regulation.

Unregulated Taxis have failed twice in American history. Once after the Great Depression and once in the 70s and 80s. But was this a failure of a deregulated industry, or just allowing a monopoly to operate unchecked? It could be argued that if you have a Taxi in a given market with no trains or buses, there is no real alternative to a Taxi. So if you have unregulated Taxis, the competition isn’t between the Taxis, it is competition between a private vehicle and public transit. Seeing as America is not known for great public transportation, the result is really just an unregulated monopoly.

This is what happened both times in the United States. As we discussed lack of competition above, this makes more sense. So in this deregulated monopoly, there were issues of too many vehicles, gouging customers, and lack of knowledge by customers. All this led to the need for the Government to intervene and make the Taxi industry behave.

The second example of deregulating an industry with no competition is Energy, and the case of Enron. Enron was a United States energy company which was able to convince the state of California to deregulate the energy industry. What this actually proved to be was just a deregulated monopoly. A company which was able to constrict energy supplies and drive up prices. The result was not deregulation of a competitive industry, but one which was a monopoly in the first place. This was allowing a monopoly to operate, unchecked, in an industry where information for the consumer was hard to come by. The result was that the Government, again, had to step in.

Level Playing Field

Now, this is not an argument for full deregulation. What is a more sustainable approach is lessening the regulations on Taxis and increasing the regulation on ride-sharing. Bringing a compromise to the industry where there is a level playing field. This level playing field is what can allow for the consumer to effectively win. The consumer wins with better service, better pricing, and more value.

Lowering the regulations on Taxis is different this time around due to the fact of increased technological advancements. The technology allows for more transparent information to the consumer, which results in the ability to make a more educated purchasing decision. Also, there is true competition in this situation, as it is now ride-sharing vs. a traditional Taxi, while you still have private vehicle, bus and train competition.